Humanity is facing terror attacks and we all understand that someone is financing such attacks for know or unknown motives. Money is very very powerful and human history confirms that countries, economies and power full human beings have behaved inhuman – immorally when it came to earn more or spend less money. Indian Government has already introduced measures like Benami Property Law, Income Tax on Black Money, Amended Companies Act dealing banning Deposits from non related members or directors, however, none of that actually impacted financing arrangements in India, as very big businesses are owned and operated as proprietorship, partnership firms, LLPs and associations, etc.
On the other-side, such smaller entities have been granted series of ease of doing measures like no GST registration for turnover up-to 20 lakh (now 40 lakh w.e.f. 01.04.2019), no tax audits for turnover up-to 1 Cr (Rs. 50 lakh for professionals), labour law relaxations, etc etc. Such entities were easily used as a means to accept money deposits (loans / advances) and route it for business or personal finances, whereas, the banking law and RBI law, makes it very clear since it’s inception that only banks and licence holding non banking finance companies can carry on the business of banking (accepting loans / deposits for interest etc), i.e. other’s were clearly banned to deal in money except taken for personal purpose from relatives and friends.
The above was a broad structure, but there was no single law or code that dealt with deposits taken by non corporate entities that are neither companies nor NBFCs. On 21st Feb 2019, Government of India, vide notification in official gazetee (Ref No Reg No. DL – (N) – 04/0007/2003-19), notified THE BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019, NO. 7 OF 2019, (referred to as BURDSO). The ordinance is a ban on all unregulated deposit schemes outstanding and on-going as on 21.02.2019 and there after and confirms all regulated deposit schemes.
The article aims to summarize the provisions of the ordinance dealing with RDS and DRDS;
a. What is an Unregulated Deposit Scheme:
Sec. 2(17) of BURDSO defines URDS means a scheme or arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a regulated deposit scheme, as per BURDSO.
First Schedule of BURDSO lists RDS as i.e. those deposit schemes governed under laws of SEBI, RBI, IRDA, State or Union Territory Government, NHB, PFRDA, EPFO, CRMSCS, MCA and any other scheme or arrangement registered with any regulatory body in India constitute or established under a statute. Central Government has retained powers to add to such regulated deposit scheme (RDS).
Therefore, any scheme of deposit which is not an RDS is now banned as URDS.
b. Who are banned to deal in URDS as a deposit taker or depositor?
Sec. 2 (5) of BURDSO defines a Depositor as any person who makes a deposit;
Sec. 2 (6) of BURDSO defines a Deposit Taker as an individual, group of individuals, a proprietorship concern, a registered or an unregistered partnership firm, an LLP, A Co, an AOP, a trust, a co-operative or multi-state co-operative society or any other arrangement of whatsoever nature.
Therefore, the above makes it clear that any arrangement between two parties (being any person) in the nature of deposit if it is not an RDS, becomes URDS and is so banned with immediate effect i.e. onward 21.02.2019.
c. What is deposit for the purpose of BURDSO to be regarded as either RDS or URDS?
Sec. 2 (4) of BURDSO means any amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form and gives a excludes;
- loans from banks, co-operative banks, foreign,
- loans or financial assistance from PFI or NBFCs or RFI or Insurance Companies
- amounts received from an appropriate government or amounts received from any other source wherein repayment is guaranteed by an appropriate government
- amount received from a statutory authority set up under central or state laws
- amount received from sources approved and in accordance with FEMA
- capital contributions from partners to firm or LLP
- amounts received by an individual as loan from relatives (therefore, personal reason loans taken by individuals from relatives are not deposits – URDS and are not banned, whereas other deposits are banned even for individuals)
- amounts received by any firm by way of loan from the relatives of any of its partners
- (credit period) amounts received as credit by a buyer from a seller on sale of any movable or immovable property
- amounts received by an registered ARC under SRFAESIA
- deposits made u/s 34 or amounts accepted by a political party u/s 29B of Representation of People Act, 1951
- any periodic payment made by the members of the self-help groups operating within such ceilings as may be prescribed by State or Union Territory Government
- any other amount collected for such purpose and within such ceilings as may be prescribed by State Government
- any amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including –
- payment, advance or part payment for supply of goods or services and which is so repayable if goods or services are not so supplied
- advance received i.r.t. an immovable property under an agreement or arrangement subject to a condition that it is to be adjusted against such immovable property as per the terms of such agreement or arrangement (in other words, booking advance money paid by customers to builders are not deposits if they are backed by an agreement to sale / bannakhat, which is otherwise also required now due to RERA and other booking advance money are now deposits and hence banned)
- security deposit or alike as deposit for the performance of the contract of supply of goods or services, i.e. performance deposit money
- any advance under the long-term projects for supply of capital goods except i.r.t. immovable properties
- Provided that if any amounts referred at Sr. No 1 to 4 above, becomes refundable, it shall be so refunded within 15 days and otherwise, such amounts from the said 16th day becomes a URDS and is so banned.
- Provided further that if any such amounts become refundable, due to the deposit taker not obtaining required approvals under applicable law, it there and then becomes a URDS and is so banned.
There has been serious of doubts and questions, however, Author has very clear views on the a BURDSO.
Author’s simple understanding of the BURDSO is deposits or advances or loans taken by any businesses (even if taken by individual, if it is taken for business purpose, provided the business is not of lending money) if such amounts are in the course of genuine connection with such business, they are not URDS and are not so banned. Therefore, individuals taking deposits, advances or loans and further lending it to business entities on interest seems to have been banned as URDS, because Indian banking law doesn’t permit individuals to deal in money i.e. borrow and lend money, lending money from out of own capital is allowed. Author makes it clear that deposits shall not be confused with capital infused in business. In any case, personal loans or funds taken by individuals from relatives are not deposits at all and are not banned, noting that they are taken for personal end use purpose and not for business purpose.
CA. Sanjay Joshi
E governance is helping India climb upper ranks in global ranking for ease of doing business. One of the biggest trouble to foreign investors who invested in India where higher rates of withholding taxes on Indian income. There was a manual procedure and law to get the appropriate TDS Rate certificate and comply with TDS (Withholding taxes) provisions, however, practically due to bureaucratic culture it was virtually difficult or extremely time consuming to get such low rate TDS certificates from Indian Tax Authorities. However, the time has gone, in the era of E governance.
CBDT has made e procedures for seeking Low or NIL Rate TDS certificate vide Notification No G.S.R. 1068(E). w.e.f. 25/10/2018. The form can be downloaded from Form13
Application for Lower Rate or NIL Rate of TDS (withholding taxes) can be made u/s 197 by recipient of income of following category
Section 192 – Salary income – employee
Section 193 – Interest on securities – investor
Section 194 – Dividends – share holder
Section 194A – Interest other than interest on securities – investor
Section 194C – Contractors income – contractor
Section 194D – Insurance commission – insurance agent
Section 194G – Commission/remuneration/prize on lottery tickets – broker
Section 194H – Commission or brokerage – broker
Section 194-I – Rent – landlord
Section 194J – Fee for Professional or technical services – professionals or consultants
Section 194LA – Compensation on acquisition of immovable property – property buyer
Section 194LBB – Income in respect of units of investment fund – investor
Section 194LBC – Income in respect of investment in securitization trust – investor
Section 195 – Income of non residents – payee to non residents
Who can make the application – Eligibility for making application ?
Any person who is receiving the income (assessee) Application can be made if income of person attracts TDS and income of recipient justifies non-deduction or lower deduction of income tax.
What is the Timeline for making application?
No specific deadline However, as TDS is made on income of on-going financial year it is advisable to make an application at the beginning of financial year in case of regular income throughout the financial year and as and when the need arises in case of one-off incomes. In other-words, in case of one of income transactions, before the transaction actually takes place, one can plan for the lower or nil rate application, to streamline cash flow impact of the transaction between parties.
What is the Procedure for making application?
- Application in Form-13 is to be filed with Jurisdictional A.O, either online (on e-filing portal) or manually. Regions of Mumbai, Tamil Nadu and Karnataka have enabled online filing of Form 13.
- Taxpayers shall file correct and complete details for processing application
- If A.O is satisfied he would issue of certificate
- Copy of certificate can be attached to invoice or other document given to deduct, and he can use this to justify lower or NIL tax deduction and comply with the TDS obligations.
Documents to be submitted with Form-13
- Digitally Signed / e-verified Form 13 (or manually if it is so)
- Copies of return of income along with enclosures and acknowledgment for previous 3 financial years
- Copies of assessment orders for previous 3 financial years
- In case of assessee having business or profession income, copies of financial statement along with audit report if any for previous 3 financial years
- Projected profit and loss account for the current financial year
- Computation of income statement for previous 3 financial years and estimated computation for the current financial year
- Copy of PAN card
- Tax Deduction Account Number of all parties responsible for paying you
- E-TDS return acknowledgment for previous 2 financial years
- Estimated income during financial year
- Any other documents depending on nature of income or expenses being claimed against income like cost of acquisition or improvement
- Explanations w.r.t. clearance of earlier TDS defaults
Validity of application made under Sec-197
It is issued for particular financial year and stands valid from the date of issue throughout the financial year unless cancelled by the A.O. and or for a specific transaction as the case may be.
Governments believe that taxes shall be paid to them in advance and business or personal transactions can take place afterwards and therefore, author recommends that the opportunity to get lower or nil rate of TDS shall be explored w.r.t. each high value income or property transactions that attracts TDS or withholding tax obligations so that cash flows can be planned by parties and transactions can be optimized.
The text of notification and form are attached.
Author
CA. Sanjay Joshi (Co Author – Sneha Nair)
**Similar provisions exist for TCS u/s 206C(9) and shall be explored.
India is trending as 2nd fastest growing economy of the world and type of commercial and personal transactions between Indians and Person of Indian Origins / Overseas Citizen of India / Foreign Citizens are growing drastically and as well as the complexities in such transactions are also evolving faster. On one side government is putting mechanisms to improve India’s ease of doing business rating on the other side it is a serious concern for the government to strengthen – strictly implement the provisions of Foreign Exchange Management Act (FEMA) and relevant procedures relating to commercial or personal cross border transactions of individuals or corporate or businesses.
Unlike FERA, FEMA aims to facilitate cross border transactions and therefore, grants an opportunity cum facility to compound an offence that is committed under FEMA. Compounding for a layman is regularizing a commercial or personal cross border transactions by undoing the legal procedures which were otherwise not done when the transaction actually took place between the involved parties. For a school going children, it is like getting the home work done by informing the teachers that it was so not done in time.
RBI under FEMA has laid down detailed guidance backed by rules i.r.t. the compounding of offence procedures and delagated the powers by classifying compounding for current account transactions like issue of shares, inward / outward remittances and capital account transactions like purchase of properties in India or outside India etc.
The detailed as well as summarized compounding procedures are hosted on RBI website, the links are
Detailed compounding rules and Forms – https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=7314
FAQs on compounding of offence –
https://rbi.org.in/Scripts/FAQView.aspx?Id=80
Master – Direction on Compounding of Offences:
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10190&Mode=0
The article simply aims to be a quick guide to compounding, as it is always advisable to evaluate cross border transactions and put in place appropriate compliance beforehand, if not, even after the transactions got executed, it should be compounded, as it brings piece of mind, it establishes clear intentions to abide by laws and also adds to the credibility of individuals or business houses.
Compounding of Offence is a voluntary application that can be filed in prescribed form to RBI – ED as authorized along with a Rs. 5,000 demand draft payable in favor of ‘Reserve Bank of India’.
Enclosures: The application shall be enclosed with complete details of transactions along with related evidences – proofs and a declaration – undertaking that the applicant is not facing investigations from Indian DOE, CBI Etc.
Personal Hearing: During scrutiny authorities provide an opportunity to be personally heard, though it is not compulsory to appear. Optionally, one can also send a representative to attend, however, compounding is a voluntary admitted offence, it is preferred to attend personal hearing in person along with representatives.
Time: Compounding applications are to be disposed off within 180 days and an order for compounding fees is to be honored (i.e. fees shall be paid) within 15 days. If not paid, the applicant shall be treated as defaulter who never filed any compounding application and is subject to penal actions. Any offence compounded once can be again compounded if the same is not repeated within a period of three years of it’s first compounding and is treated as a fresh offence for compounding.
Disclosure: RBI has also started hosting the compounded offences and related orders at https://www.rbi.org.in/scripts/Compoundingorders.aspx
Cost of Compounding: Technically compounding fees can be as high as 300% of the transactions involved, however, as per the detailed guidance provided by RBI and as per the historical track record, the cost of compounding hardly ranges to 5-10% max for the transaction involved added by consultant fees. Commercially, it always make sense to compound an offence, instead of waiting for an RBI or government action, which can also result into imprisonment of authorized signatories.
Contraventions relating to any transaction where proper approvals or permission from the Government or statutory authority concerned, as the case may be, have not been obtained, such contraventions would not be compounded unless the required approvals are obtained from the authorities concerned.
It is of at-most importance to first evaluate the transactions, related compliance and the status thereof as well as it implications before proceeding for the compounding application. Noting that government and RBI has powers to even cease movable or immovable properties and impose severe penalties that may value up-to 300% of the value of the properties or transactions involved, one shall always consider compounding as means to secure piece of mind and clear KYC for India operations.
CA. Sanjay Joshi
Author
SETTING UP A FOREIGN BRANCH IN INDIA
Criteria:
To open a Branch Office of a Foreign Co. in India, one shall comply with Foreign exchange management act (FEMA) and compliances under the Companies Act, 2013.
The non-resident entity applying for a BO in India should have a financially sound track record – a profit making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent. Net Worth means total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a CPA.
Procedure – Documents required for setting up a Branch Office:
- File a Permission to RBI in Form FNC-1. to Chief General Manager, Exchange Control Department, RBI central office, Mumbai. Documents to be submitted with FORM FNC-1 are mentioned below.We have filed up a draft form and a copy is attached.
- Following documents should be attested from home country (notary + Apostile) (Where the Company means Atul Inc.)
- Name of Company with Certificate of Incorporation in home country,
- Latest audited balance sheet – financials,
- Brief description of activities of Company – company profile
- Value of Import/Export to India by the Company during last three years (NIL)
- Detail of existing arrangements in India, if any; (NIL)
- Name and address of banker of the Company in the home country;
- Certified Copies of Memorandum and Articles of Association
- List of directors and secretary of the Company i.e. name, address, designation, date of appointment etc;
- Registered office address of the Company including telephone no. and email id;
- The name and address person resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company;
- Full address of the office of the company in India which is deemed to be its principal place of business in India including telephone no. and email id;
- Particulars of opening and closing of a place of business in India on earlier occasion or occasions; (NIL)
- Detail of other places of business in India, if any; (NIL)
- List of shareholders containing name of shareholder, address, number of shares and value of shares;
- DSC of authorized representative of foreign company or that of directors;
- Certified copy of PAN of authorized representative of foreign company or DIN if available;
- Particulars of subsidiary, holding or associate companies of the foreign company in India (NIL)
- Other documents required:The ROC appointed in state where the foreign co desires to establish its branch office, can demand all those documents which are mentioned in other documents below (Except Digital signatures of directors).
- Passport:For Foreign Nationals, Passport is a mandatorily as identity proof
- Address Proof:In addition to the Notarized or Apostilled Passport copy, the proposed Director must submit an address proof which is also notarized or apostil led. i.e. Driving License / Residence Card / Bank Statement / Government issued form of identity containing address.
- Residential Proof: In addition to the address proof, a residential proof must be submitted during the incorporation of the Company to validate the current address of the Director. Government issued form of identity containing address / Bank Statement / Electricity Bill / Telephone Bill / Mobile Bill
- Registered Office Proof: The registered document of the title of the premises of the registered office in the name of the company;
OR
The notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month and The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord;
AND
Proof of evidenceof any utility services like telephone, gas,electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.
- Shareholder:The identity and address proof as detailed in the article must be submitted for all the shareholders of the Company (i.e., subscribers to the Memorandum of Association (MOA) and Articles of Association (AOA).
Time: It takes 2 to 4 weeks to get the approval from RBI
Annual Activity Certificate (AAC):The Annual Activity Certificate (AAC) as at the end of March 31 each year along with the required documents needs to be submitted by the following: Audited Balance Sheet on or before September 30THof that year.
The BO needs to submit the AAC to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi whereas the PO needs to submit the AAC only to the designated AD Category -I bank.
Cost & Benefits:
Incorporation grants a separate legal status from owners and has tax as well as commercial advantages. The cost of formation depends on the size of capital being invested in the Indian operations, ranging from 1-5%, which can be minimized by investing only minimum amounts towards capital and balance can be given to Indian Operations as Loan under the approved routes as per FEMA.
The authors have made an attempt to make a broad checklist w.r.t. start up by a Foreign Co in India.
CA. Sanjay Joshi
(Co Author – Krishna Dvivedi)
Casual Taxable Person under GST
GST Law got introduced and implemented with lots of troubles, but it has been simplified and ease of compliance is increasing day by day. One of the challenges of GST Law was to tackle businesses who are predominantly belong to a State but has occasional presence in other states, say casual dealer for the other state. But the law has a scheme for casual dealer as well.
- CTD – Sec. 25 and 27 of CGST Act read with Rule 13 & 15 defines a casual taxable person means a person who supplies taxable goods or services occasionally in a state where he does not have a fixed place of business. The person can act as a Principal or agent or in any other capacity supply goods or services for the furtherance of business.
- Registration – Such dealers are also under an obligation to register in a state, if their turnover crosses threshold i.e. Rs. 20 lakh. The regular registration once taken, imposes burden of continuous compliance, record maintenance, audit etc.
- REGISTRATION PROCESS: For Registration as Casual Taxpayers following procedure needs to be followed by Person
- File Form GST REG-01 (PART A) similar as normal taxpayer and declare PAN, Mobile number, Email and State therein.
- GSTIN will generate an ARN (application reference number) and post that applicant shall file PART B with specified documents.
- No proof of address is to be given. CTP enjoys an option to register for a period of 90 days. However, CTP has to intimate estimated turnover, pay the estimated tax (GST) liability upfront along with the registration application. GSTIN will automatically generate a challan to deposit advance estimated GST.
- On depositing the amount, an acknowledgment shall be issued electronically to the applicant in Form GST REG-02 and a TRN (temporary reference number) will be generated.
- After approval, an RC (registration certificate) will be issued electronically and the amount will get credited to electronic cash ledger of that casual taxable person.
- Registration can be extended for another 90 days, by filing Form GST REG-11 electronically by seeking permission from Jurisdictional GST Commissioner.
- RETURNS
| Returns | Due Date |
| GSTR-1 – Outward Supplies | On or b/f 10th of the next month |
| GSTR-2 – Inward Supplies | After 10th but b/f 15th of the next month |
| GSTR-3 – Turnover | After 15th but b/f 20th of the next month |
| Annual Return | Not Applicable |
- REFUND
Excess GST cash balance on closure of registration period by filing Sr. No. 14 of GSTR – 3.
Author
CA. Sanjay Joshi (Co-author: Krishna Dvivedi)
Steps to e-file TDS Regular / Correction Return Online
1. Login to traces, click on the option “Register at E-filing site” and it will take you to the E-filing portal of income tax.
2. Register your TAN on the E-filing portal and provide the details for registration of Primary Contact Number ,Primary Email-id, Secret Questions and Address.
3. OTP will be received on the Primary mobile number & Email-id both and your TAN will get Activated on the portal.
4. Confirmation mail will be sent on the Primary email-id.
5. Login to e-filing portal of Income Tax with your PAN number, Visit the Tab “For your action” and click on Approval for TDS Registration E-filing.
6. Once approved, you need to login through the e-filing portal of income tax, by entering User id as your “TAN Number” and the new password which was set for TAN registration.
7. After login, it will open a portal for TDS returns under that click on TDS, Upload TDS and enter details.
8. Register your DSC on the TDS e-filing portal under the “Profile Settings” option.
9. Download the TDS DSC Management Utility for generation of Signature file.
10. Open the DSC file management utility, go the last option of Bulk upload, wherein “DSC will be generated for zip file”
11. Create a zip file of only “FVU file” (Note : It has to be a ZIP file only and not a RAR file)
12. Select USB token type, the DSC will pop-up, Enter password and a Signature file will be created against it.
13. Visit E-filing portal, enter details for uploading of TDS return i.e. FVU version (will show latest only), Form Type, Year, Quarter, Type of return.
14. Attach the Generated Zip file of only FVU file along with generated signature file.
15. Generated Signature file is valid for only one transaction at a time, cannot be re-used for another upload, you need to create a new one each time through the DSC utility.
16. Note : DSC Management Utility shows various Options, for which different Signature files are
being generated.
17. Upload the files and TDS return will be uploaded and Ack will be sent to the primary email-id registered on the portal.
18. Note: If your using E-verify option for Tds return, then the primary contact person registered initally with the traces will received the OTP on the number linked with his or her Aadhar Card.
Author – Nikunj Dave
